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Economic News Includes Reminders that Low Mortgage Rates May Not Be Permanent

January 8th, 2009

A funny thing happened in economic news this week:

Since low interest rates generally go hand-in-hand with a weak economy, why were Treasury yields moving higher, and what might this mean for mortgage rates?

Treasury Yields

Over the last third of December, 2008, 10-year U.S. Treasury bond yields hovered at around the 2.10% mark. Historically, this represents an extraordinarily low level, but that wasn’t a surprise considering the economic environment. In part, interest rates represent the price of capital, and with spending slow, there was little demand for capital. As with most things, if you take away the demand, the price will fall — in this case drastically.  Back in July of 2008, those same Treasury yields were above 4%, so they fell roughly in half in less than six months.

Treasury yields are also very sensitive to inflation. The higher the expected rate of inflation, the higher interest rates have to be to compensate for the loss of purchasing power this inflation would represent. With the historic collapse in oil prices over the second half of 2008, along with falling demand for a wide range of goods and services as the recession took hold, inflation had the wind knocked out of it. In fact, inflation figures moved into negative territory during the second half of 2008. This sudden disappearance of an inflation threat is also consistent with the low level of Treasury yields.

However, at the end of December and into early January, Treasury yields suddenly rose by forty basis points (0.40%) in just five trading days. Why? One clue may be indications that the price of oil has just about hit bottom. Looking at oil futures, the consensus is for a rebound to around $58 per barrel by the end of 2009. That may not seem outlandish given where oil has been over the past year. However, it does represent a 40% increase over current levels — enough to put a little upward pressure on inflation, and by extension, on Treasury yields.

Treasury Yields and Mortgage Rates

While Treasury yields and mortgage rates don’t move in lockstep, they are driven by many of the same things and so they generally move in the same direction most of the time. Certainly, mortgage rates are more closely related to Treasury yields than they are to Fed fund rates. So, even though 30-year mortgage rates fell for the tenth consecutive week to reach a new low of 5.01%, the bump up in Treasury yields should be cause for concern. If nothing else, it is a reminder that financial markets do not move in a straight line indefinitely.

These market undercurrents are a call to action for potential home buyers. If a buyer has good credit and a steady job, then there should be no delay in shopping for a mortgage. Mortgage rates have never been lower, and they are not likely to stay that way forever.

Housing Prices and Mortgage Rates Provide Holiday Hope — For Some

December 26th, 2008

The week leading up to Christmas was relatively free of dramatic developments. With the government having exhausted many of the options at its disposal, there was just a steady drumbeat of continued negative economic news. Meanwhile, mortgage rates slipped down a little further, exploring new record-low territory. Those lower rates take on greater significance with the slide in housing prices looking like it may actually be bottoming out in some areas.

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Recession News Might Be Green Light for Mortgage Borrowers

December 4th, 2008

It may only have confirmed what most people already suspected, but the biggest financial news of the week was the official announcement that the United States was already in a recession.

Two very different consequences of the slumping economy could be seen in other news of the week:

While the prospect of unemployment may be enough to give anybody pause, those low mortgage rates should be a green light for many borrowers.

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Mortgage Rates Zig and Zag: This Week It’s Down

October 23rd, 2008

As expected, mortgage rates continued their manic behavior, heading downward this week as focus shifted to the likelihood of recession: 

Certainly, this is the most troubling economic environment in a generation — but one with at least some glimmer of hope.

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Plans, Politics and Mortgage Rates

October 16th, 2008

As national and global economic plans were unveiled, the stock market careened between seven-hundred point losses and nine-hundred point gains, then back to huge losses again. Overall, the losses far outweighed the gains, despite a general impression that world governments were taking all the right steps to address the credit crisis.

Meanwhile, each of the two major-party Presidential candidates came out with mortgage plans of their own, but these didn’t create a ripple in the markets.

Why then? Because the financial markets are starting to focus on the real problem. Meanwhile though, some potential home buyers who understand that problem and how it affects them may find the that the mortgage and housing markets are presenting a compelling opportunity. 

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30-Year Mortgage Rates Fall Back Below 6%

October 9th, 2008

It should have been hailed as good news. Instead, the move by 30 year mortgage rates back below 6% was largely overshadowed by other events:

So what is a mortgage shopper to do? Take advantage of lower rates, or stay on the sidelines until the world financial turmoil subsides?

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Mortgages Get Cheaper Amid Financial Turmoil

September 18th, 2008

There’s an old saying that it’s an ill wind that blows nobody any good. It applied this week, as the whirlwinds on Wall Street had an unexpected benefit for mortgage shoppers.

While mortgage shoppers should not ignore the gathering economic and financial clouds, those lower mortgage rates should remain their primary focus.

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Connect the Dots… to Lower Mortgage Rates

August 7th, 2008

Current events give a good demonstration of what really drives market interest rates:

The reason for the drop in mortgage rates can be traced to a third significant development:

All of which suggests that potential homebuyers — or mortgage refinancers — would do well to keep their eyes on the price of oil in the weeks ahead. 

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How Long Can Rate Stability Last?

April 10th, 2008

The significant thing in mortgages this week wasn’t what had changed, but what had stayed the same. 30-year mortgage rates posted their fourth consecutive weekly reading within a range of only 0.03%. 

This stability was not because of a lack in economic news. Among the prominent developments:

Indeed, considering the amount of economic news, the fact that mortgage rates remained unchanged was not because there were no new developments, but more because conflicting developments essentially fought to a standstill.

For mortgage shoppers, this meant good news — additional time to think and act while mortgage rates are still at uncommonly low levels. 

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